Cryptocurrency donors claiming large charitable deductions shouldn’t wait for Congress to ease appraisal rules, a trusts and estates attorney told Checkpoint, adding that donor-advised funds or public charities are usually a better fit than private foundations.
Benjamin Sunshine, a senior associate in Brinkley Morgan’s wills, trusts, and estates practice, said donors making charitable contributions should “dot every single i and cross every single t.”
Exchange prices do not substitute for appraisals
Under IRC § 170(f)(11)(C), a donor claiming a deduction of more than $5,000 for donated property must obtain a qualified appraisal unless the property is cash, publicly traded securities, or another exempt type.
In Chief Counsel Advice 202302012, released January 13, 2023, the IRS concluded that cryptocurrency doesn’t qualify as a publicly traded security because it isn’t a security under IRC § 165(g)(2). A donor who claims $10,000 based on an exchange’s posted price, without an appraisal, can’t take the deduction.
Relying on that price isn’t reasonable cause either, the memo said, citing Pankratz, T.C. Memo. 2021-26.
The appraisal is one of two requirements Sunshine flagged. “The other big one is you need to get the contemporaneous written acknowledgment from the charity that you didn’t receive anything in return,” he said, adding that “a lot of people miss” it.
Section 170(f)(8) requires that acknowledgment for gifts of $250 or more. Sunshine cited a pair of Tax Court opinions denying two cousins’ deductions for land donated to a Utah city because none of the documents they offered stated that the city provided no goods or services in exchange (Martin, T.C. Memo. 2026-39; Martin, T.C. Memo. 2026-40).
Bill would ease appraisals, extend wash sale rule
The Digital Asset Tax Certainty Act, H.R. 10357, introduced September 14 by House Ways and Means Committee Chairman Jason Smith (R-MO), would add qualified U.S. dollar stablecoins and widely traded digital assets to the appraisal exemption for tax years beginning after 2026. A token would have to meet market capitalization, trading history, and ownership tests to count as widely traded, and most other tokens donated directly would get no deduction.
Sunshine said the bill would “1,000%” resolve the appraisal issue, though “we’ll probably need some guidance” on which assets qualify. He expects the category to cover many mainstream cryptocurrencies.
The bill would also apply the wash sale rule under IRC § 1091 to traded digital assets sold after September 14, 2026. Sunshine said TikTok tax content creators often promote harvesting crypto losses. “I see it all the time, and I don’t think that’s good advice,” he said.
Even without the bill, the IRS could challenge quick sales and repurchases of crypto under the economic substance doctrine, codified in IRC § 7701(o), he said. While he is “not aware of any cases” applying the doctrine to crypto, he said an aggressive IRS could probably make that case.
The Ways and Means Committee approved the bill 38-5 on September 16. If not enacted before this Congress ends January 3, 2027, it would have to be reintroduced next year, when Democrats take control of both chambers after winning the November 3 midterms.
Vehicle choice, timing matter
Giving crypto to a private foundation limits the deduction to basis and carries lower adjusted gross income (AGI) limits, Sunshine said. He also cited restrictions on jeopardizing investments under IRC § 4944, saying holding volatile assets like crypto may not be the best strategy for a foundation.
Donor-advised funds and public charities allow a fair market value deduction for assets held longer than a year and higher limits, and when a third party manages the crypto, he said.
“For most donors … if you are going to donate widely traded crypto, donor-advised funds or a public charity is probably the way to go,” Sunshine said.
Under the One Big Beautiful Bill, P.L. 119-21 itemized charitable deductions starting in 2026 count only to the extent they exceed 0.5% of a taxpayer’s contribution base, generally AGI. Bunching larger gifts into one year means donors “don’t have to deal with the 0.5% AGI floor every single year,” he said.
“Don’t wait until 2027. It’s not complicated to get an appraisal. It’s not that expensive,” he said.
For more on the $5,000 threshold for the appraisal requirement and exceptions, see Checkpoint’s Federal Tax Coordinator 2d ¶ K-3951.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
